Qatari bank lending fell 7 per cent in the first two months of 2009 as credit to the public sector dropped 36 per cent, central bank data showed on Tuesday, in the latest signal Gulf banks are more cautious on new loans.

After more than doubling between 2007 and 2008 during a regional economic boom, total domestic credit in Qatar fell month-on-month in January and February as global economic turmoil took the heat out of a regional credit boom.

Gulf economies - heavily reliant on hydrocarbon revenues - had surged as oil prices rallied to peaks of almost $150 a barrel last July, and they slowed down as the price of crude slumped to low-$30 a barrel levels earlier this year.

Total bank credit in Qatar, the top global exporter of liquefied natural gas, stood at QR205.27 billion ($56.37 billion) on February 28 compared with QR220.81 billion at the end of 2008, the central bank said in a monthly bulletin.

'Banks are being more cautious,' said Giyas Gokkent, chief economist at National Bank of Abu Dhabi, who said he expected credit to be flat in most Gulf states until at least the fourth quarter.

The drop in credit was due primarily to a decline in lending to the public sector, which fell in February to QR38.64 billion from QR60.59 billion at the end of December.

'Probably a lot of banks were stretched in terms of their balance sheets and the government paid back some of the loans it had taken. One reason could be to help them breathe a little easier,' Gokkent said.

Lending to the private sector, meanwhile, advanced 4 percent in the first two months of 2009 compared with December to 166.63 billion riyals at the end of February, the data showed.

Still, year-on-year growth of private sector credit of 36.7 percent in February was the slowest rate in at least two years.

Prudent lending

The pace of new bank lending has slowed across the Gulf region. Loans to the private sector in Saudi Arabia posted a month-on-month decline in four of the last five months, central bank data showed on Tuesday.

While Gulf central banks and governments have taken a number of measures to improve banking sector liquidity, banks have taken provisions to guard against an expected rise in bad loans as regional property and equity markets face sharp declines.

M2 money supply growth in Qatar also slowed for the eighth straight month to 5.3 percent in February, when total domestic liquidity stood at 176.96 billion riyals, the central bank said.

By comparison, annual money supply had surged at least 45 percent in each of the first seven months of 2008 as oil prices scaled peaks above $100 a barrel and investors piled into riyals on expectations the Gulf state would revalue its currency.

M3 money supply grew 9.9 percent in the year to February to 198.53 billion riyals, while the central bank's net international reserves fell 4.8 percent to 40.31 billion riyals in the year to February, the data showed.-Reuters